Voices 07/11/2011

What wheat farmers can expect?

Europe’s farmers should be cautious about expecting higher wheat prices. Increased competition in exports from the Central and Eastern Europe is likely to impact on the ability to get higher prices. In addition, it appears the region’s consumers have almost covered their needs – hence without a significant push in demand, prices cannot be expected to increase.

On a more positive note, the global shortage of corn, which is interchangeable with wheat in several uses, is likely to inject some buoyancy in wheat prices, especially considering the fact that the US harvest is coming to an end. The seasonal low in the corn market is expected to account for some resilience and strengthening in wheat prices.

Nevertheless, high harvests in the European market this year means that regional supply is comfortable. A decrease in exports is expected since Central and Eastern Europe markets are meeting their own demand without needing to import. Russian and Ukraine are expected to be the key competitors now and in the future. This means wheat availability and supply will be high in Europe, limiting the potential for price increases.

Even ‘quality of product’ is not going to be a protection to the Europe farmers. Historically, Europe’s crop has been proved to be of a higher quality. Consequently, many European flour mills have forward covered their need – it is estimated that European demand pipelines are almost filled with top quality wheat to last until December 2011. This scenario reduces the potential for price increases.

Since supply is currently in excess of demand, any price premiums of quality wheat have been eroded. For example, in the German market, wheat prices at Baltic ports were €40 a ton in August 2011, and they lost €10 a ton by late September 2011.

The protein levels in the French wheat were 11.5%. Although this was below average, it exceeded earlier expectations. Wheat crops’ yields from the UK, Romania and Hungary showed results which were better than the previous year.

Poland’s harvests were disappointing due to excessive rainfall which occurred during the year. This left only 50% of milling grade for the crop, compared with the standard average of 80%. The USDA attaches warned that the Polish grain was of poor quality due to the presence of fungi, caused by the excessive rainfall before and during the harvest.
The factors outlined above presents some uncertainty on the buoyancy of the European wheat prices.

di OpusFirst